http://quiltville.com/
If you go to this website, you will find that your scrap system is manageable, is doable, and someone has done it!
This Bonnie Hunter gal is all right!
I forget how many patterns she has at her site for using scraps, but she will be a good encouragment to you in your endeavor to get organized/in control of something that should never be allowed near the air <g>
Ugly fabrics? Not a problem ... forget cutting them into strips ... cut them right down into two inch squares ... it is absolutely amazing how you can disguise the original purpose ... of course, you will always know that it was those tantalizing bathing beauties in paradise, but someone else will just see a light or dark area.
As far as 2.5" blocks, or 2" blocks, think double/triple Irish chain - - or Thelma's Dumpster Diving Quilt ...
One of the easiest ways to organize scraps is to actually complete a quilt project and take JUST the scraps and pieces of blocks or extra blocks and start your next quilt ... you will obviously be pulling things out of your scraps to make sure that each of your blocks going in to your next quilt are the same size, or whatever. I posted a picture of a scrap quilt I was working on, based on the leftovers from a Round Robin that I am participating in. While working on those pieces, I created almost thirty stack and slash quilt blocks ... and took all those scraps to add to my little scrap blocks ... and today! I ACTUALLY! drug out a box of scraps from a drawer that I have not looked at for a couple of months ... but those were a drawer I had created a couple of months ago ...
I just went on an obsessive cutting rampage and started doing what you are doing.
All of this activity is supposed to keep me out of trouble ... but ... <g> better luck TOMORROW! <wave> 8)